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January 6, 2021

Consolidated Appropriations Act, 2021, contains expansion of certain real estate credits

The Consolidated Appropriations Act, 2021 (Act), signed by the President on December 27, 2020, addresses certain tax credits for community development to encourage continued investment, such as extending the New Markets Tax Credit (NMTC) and creating a minimum 4 percent interest rate for the low-income housing tax credit (LIHTC).

New Markets Tax Credit

The NMTC Program, established in 2000, permits individual and corporate taxpayers to receive a credit under IRC Section 45D against federal income taxes for making qualified equity investments (QEIs) in community development entities (CDEs). The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended the NMTC by one year to December 31, 2020. The amount allowed to be allocated in total credits was $5 billion for 2020. The credit totals 39 percent of the investment and may be claimed by the investor over seven years. Generally, a CDE must invest at least 85 percent of its QEIs in qualified low-income community investments (QLICIs).

A CDE has 12 months to invest QEIs in a QLICI. A CDE also has 12 months to reinvest amounts received in payment of, or for, capital, equity or principal with respect to a QLICI in order for those amounts to be treated as continuously invested in a QLICI. Working capital is defined as any investment proceeds or loan that will be used for construction of real property within 12 months after the date the investment or loan is made.

New provisions

The Taxpayer Certainty and Disaster Relief Act of 2020 (included in the Act), Section 112, extends the credits until December 31, 2025, and sets the amount that can be allocated in credits through 2025 at $5 billion annually. In addition, the new provision extends the carryover of unused credits that may be allocated until 2030 (from 2025).


Before the Act's passage, the NMTC program was in its final year of funding. The extension provides much-needed stability to a program that directly affects communities in need. These additional rounds of NMTC allocations have broad industry support. The extension of the program is also welcome news as the COVID-19 pandemic continues to hinder the economy. It likely means a busy calendar year for 2021, with the 2020 allocation awards expected to be announced in the Summer, followed shortly thereafter with an application deadline for the first $5 billion round of credits.

A larger pool of funding should mean more successful CDEs and more projects benefiting from participation in the program. That said, we expect that it will still be highly competitive for CDEs that are looking for an allocation and projects that are looking for funding. We encourage CDEs that are considering applying or projects that are looking for funding to start the process as early as possible for the best chance of success.

Low-income housing tax credit (LIHTC)

Under the LIHTC program (IRC Section 42), state housing agencies distribute tax credits granted by the federal government to developers of low-income housing. For residential units to qualify as a low-income housing project, a certain percentage must be rent-restricted and occupied by low-income tenants. The LIHTC program subsidizes part of the costs by applying a 70 percent present value credit for certain new buildings (often referred to as the 9 percent tax credit) and 30 percent present value credit for certain other buildings (often referred to as the 4 percent tax credit).

New provisions

The Taxpayer Certainty and Disaster Relief Act of 2020, Section 201, created a minimum discount rate of 4 percent (often referred to as the 4 percent floor) for new or existing buildings that are eligible for the 4 percent credit and receive an allocation of tax credits or tax-exempt financing after December 31, 2020. This will serve to increase the amount of subsidy available to projects that are eligible for the 4 percent tax credit and rectify some of the issues created by how far the rate used to calculate the 4 percent tax credit has fallen relative to the cost of debt for affordable housing projects. It is worth noting that the 9 percent credit rate had a floor put in place as part of the Housing and Economic Recovery Act of 2008 and subsequent legislation that permanently extended the minimum tax credit percentage.

In addition, the Taxpayer Certainty and Disaster Relief Act of 2020, Section 305, increased, by $1.2 billion, the amount of tax credits that may be allocated in 2021 and 2022 to states that experienced qualified disasters apart from COVID-19. Additionally, properties in a non-COVID-19 disaster zone were provided an additional 12 months to meet the 10 percent test and placed-in-service deadlines.

Alternative depreciation system

The Tax Cuts and Jobs Act amended IRC Section 163(j) to reduce business interest expense deductions to the sum of (1) the taxpayer's business interest income, (2) 30 percent of the taxpayer's adjusted taxable income (ATI), and (3) the taxpayer's floor plan financing interest. An RPTOB could elect out of this new limitation, but then had to use the ADS for residential and nonresidential real property and qualified improvement property (QIP). The elections had to be made on a timely filed original return and were irrevocable.

The TCJA reduced the ADS recovery period from 40 years to 30 years for residential rental property. As clarified in Revenue Procedure 2019-08, the recovery period of residential rental property under IRC Section 168(g)(2)(C) is 30 years for residential rental property placed in service by the taxpayer after December 31, 2017, and 40 years for residential rental property placed in service by the taxpayer before January 1, 2018.

New provisions

The Taxpayer Certainty and Disaster Relief Act of 2020, Section 202, amends the TCJA to allow all residential rental properties, including those placed into service before 2018, to use the 30-year ADS recovery period (see Tax Alert 2020-2932).


With variable housing credit rates having fallen to historic lows as a result of the COVID-19 pandemic and low federal borrowing rates set by the Treasury Department, the 4 percent housing credit floor is expected to rectify issues with financial feasibility for many affordable housing properties. The higher 4 percent tax credit rate used to calculate the amount of eligible housing credits will theoretically produce thousands of additional affordable housing rental units by making more developments feasible through the infusion of additional equity capital.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services
For questions about NMTCs:
   • Michael Bernier (
   • Megan Knutson (
   • Michael Roney (
For questions about LIHTCs:
   • Michael Bernier (
   • Renee Ibarra (
   • Lisa Zebro (